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On Wednesday, JPMorgan analyst Henry Wibowo downgraded United Tractors Tbk PT (UNTR:IJ) (OTC: PUTKY) from Overweight to Neutral and reduced the price target to IDR24,000.00 from IDR33,000.00. The downgrade follows multiple years of the company’s outperformance, attributed mainly to the commodity supercycle between 2021-2023 and resilient earnings in 2024. According to InvestingPro data, the company maintains a "GREAT" financial health score of 3.27, with strong profitability and cash flow metrics.
Wibowo cited increasing uncertainties around United Tractors’ earnings growth due to sustained pressure on coal prices, which could negatively impact heavy equipment sales, service pricing, and volumes, as well as the coal mining business itself. Additionally, rising cash costs at the Martabe mine and higher gold royalties were mentioned as factors that could partially offset the benefits from rising gold prices. Despite these challenges, the company maintains strong fundamentals with a current ratio of 1.54 and more cash than debt on its balance sheet.
Consequently, JPMorgan has reduced its fiscal year 2025 and 2026 earnings estimates for United Tractors by 7-11%, which now sit 4-6% below the consensus estimates on the Street. The firm now anticipates an earnings per share (EPS) decline of 10% in 2025 and 7% in 2026 for the company.
Despite the downgrade, the firm believes that United Tractors’ valuation remains non-demanding, trading at an estimated 5 times the 2025 forecasted P/E with an approximately 8% dividend yield for the year, suggesting limited downside. InvestingPro analysis indicates the stock is currently undervalued, with a P/E ratio of 4.29x and a current dividend yield of 4.77%. The company has maintained dividend payments for 21 consecutive years, demonstrating strong shareholder commitment. This perspective is maintained even though the Newcastle Coal index has fallen 24% year-to-date to around $95/ton, significantly below its five-year peak of approximately $400/ton during the 2022 commodity supercycle.
JPMorgan advises investors to neutralize their positions in United Tractors and consider trimming into strength, noting that the stock has recovered approximately 15% from its recent low, outperforming the 11% gain of the Jakarta Composite Index (JCI), buoyed by the rally in gold prices. For investors seeking more direct exposure to gold, JPMorgan recommends considering ANTM. For comprehensive analysis and additional insights on United Tractors and similar investment opportunities, visit InvestingPro, which offers exclusive financial metrics and investment tools.
In other recent news, United Tractors reported significant developments affecting its financial outlook. During its earnings call, the company noted that customers are increasingly requesting discounts on mining services and changes to stripping ratios. This situation has led analysts at Morgan Stanley (NYSE:MS) to downgrade United Tractors’ stock rating from Overweight to Underweight, with a substantial reduction in the price target from IDR34,800.00 to IDR21,400.00. The downgrade is based on concerns about the company’s earnings potential amid pressures in the coal and equipment supply chain. Analysts have highlighted that Indonesia’s coal cash costs, currently between $55-60 per ton, are close to the present coal price of $67 per ton. This tight margin poses a risk to producers, particularly those in the highest-cost quartile. Additionally, global LNG prices are expected to decrease by 2026, potentially adding pressure to United Tractors’ coal earnings, which are estimated to be 50% above the mid-cycle level. To address these challenges, Morgan Stanley has adjusted its pricing, fees, and margin estimates for United Tractors’ coal mining, coal contracting, and equipment segments.
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